Envisioning State Regulatory Roles in the Provision of Energy Storage Tom Stanton Principal Researcher, Energy and Environment National Regulatory Research Institute Briefing Paper No. 14-08 June 2014 © 2014 National Regulatory Research Institute 8611 Second Avenue, Suite 2C Silver Spring, MD 20910 Tel: 301-588-5385 www.nrri.org National Regulatory Research Institute About NRRI NRRI was founded in 1976 by the National Association of Regulatory Utility Commissioners (NARUC). While corporately independent, NARUC and NRRI are linked in multiple ways to ensure accountability. NARUC, as the association of all state regulators, is invested in quality research serving its members. NRRI coordinates its activities to support NARUC's policy, research, educational and member-support service to state commissions. Mission Statement To serve state utility regulators by producing and disseminating relevant, high-quality research that provides the analytical framework and practical tools necessary to improve their public interest decision-making. In all its activities, NRRI embodies the following values: relevance, excellence, objectivity, creativity, independence, fiscal prudence, ethics, timeliness and continuous improvement. Board of Directors Chair: Hon. Betty Ann Kane, Chairman, District of Columbia Public Service Commission Vice Chair: Hon. Greg R. White, Commissioner, Michigan Public Service Commission Treasurer: Hon. Travis Kavulla, Commissioner, Montana Public Service Commission Secretary: Rajnish Barua, Ph.D., Executive Director, NRRI Hon. Susan K. Ackerman, Chair, Oregon Public Utility Commission Hon. David W. Danner, Chairman, Washington Utilities and Transportation Commission Hon. Elizabeth B. Fleming, Commissioner, South Carolina Public Service Commission Hon. James W. Gardner, Vice Chairman, Kentucky Public Service Commission Charles D. Gray, Esq., Executive Director, NARUC Hon. Robert S. Kenney, Chairman, Missouri Public Service Commission Hon. David P. Littell, Commissioner, Maine Public Utilities Commission Hon. T. W. Patch, Chairman, Regulatory Commission of Alaska Hon. Paul Roberti, Commissioner, Rhode Island Public Utilities Commission - i - Envisioning State Regulatory Roles in the Provision of Energy Storage Abstract Electricity storage is a growing component of the utility grid. A mix of old and new storage technologies can provide value to the utility grid, and more storage is becoming cost- effective as emerging technologies improve and their cost declines. The Federal Energy Regulatory Commission (FERC) is already taking actions to enable storage technologies to participate and be compensated in wholesale power markets, and many states are already starting to deploy storage, at least in demonstration and pilot programs. The U.S. Department of Energy (DOE) presently identifies nearly 200 electricity storage demonstration projects underway in the U.S. Hundreds more are being planned and developed now, and over 2GW of requests for proposals (RFPs) are in the works, for procuring utility-scale storage to be installed over the next five years. (EnergyStorageUpdate.com, 2014; Sandia Corporation, 2012; U.S. DOE, 2014; Wesoff, 2014). This paper reviews the current situation for energy storage and explores state regulatory and other policy options, for enabling storage to play a larger role in electricity service provision when and where storage options are cost-effective. The goal for this paper is to identify best practices for state public utility regulations and associated policies that can best reduce or remove any unintended barriers facing cost-effective electricity storage technologies. Electricity storage represents something of a new frontier for state regulators. This paper is intended to serve as a preliminary guide to regulatory issues and an introduction to practical approaches for addressing them. Regulatory approaches identified include provisions for storage both as a utility resource and as a customer resource, operating behind the utility meter. Six different concepts are presented, including: (1) incorporating storage options into utility integrated resource planning (IRP); (2) gaining and applying maximum information from demonstration and pilot projects; (3) overseeing utility requests for proposals (RFPs) for meeting specific, identified needs; (4) implementing storage-friendly rate designs, including time-differentiated rates; (5) enabling storage operations in microgrids; and (6) mandating storage installations. In addition, recent state commission actions regarding possible changes in the utility-regulatory paradigm are briefly described. State and U.S. territory energy storage policies and implementation activities are briefly summarized in Appendix A, including: Active Dockets (7 states); Completed Dockets (4 states); Demos & Pilots (39 states, totaling about 350 projects); IRP requirements (6 states); Proposed Legislation (5 states); Microgrid Policies including storage capabilities (9 states) and Plug-In Electric Vehicles Policies (13 states); R&D or Business Incubator Centers (6 states); RPS provisions including storage (8 states plus Puerto Rico); Storage Mandates (in California and Puerto Rico); storage Tax Credits or other Financial Incentives (10 states); and Working Groups or completed public workshops (8 states). - ii - Acknowledgements This NRRI briefing paper could not have been completed without the support and information provided by several state public utility commissioners, commission staff members, and other colleagues. I am indebted to the following for their many contributions: Commissioner Patricia L. Acampora (New York PSC); Commissioner Lorraine H. Akiba (Hawaii PUC); Chair Ann G. Berwick (Massachusetts DPU); Commissioner Diane X. Burman (New York PSC); Commissioner David W. Cash (Massachusetts DPU); Chairman Edward S. Finley, Jr. (North Carolina UC); Commissioner Jeanne M. Fox (New Jersey BPU); Commissioner Jeffrey D. Goltz (Washington UTC); Chair Beverly Heydinger (Minnesota PUC); Commissioner Philip B. Jones (Washington UTC); and Chair Hermina M. Morita (Hawaii PUC). Commission staff who provided reviews and clarifications for the details in Appendix A include: John LeSueur and Julie McNeely-Kirwan, Arizona; Melecia Charles, California; Bob Bergman, Colorado; Mark Futrell, Florida; Jay Griffin, Hawaii; Mark Thompson, Indiana; Leighann LaRocca and Mack Thompson, Iowa; Rob Ozar, Michigan; Janet F. González and Susan Mackenzie, Minnesota; Steven F. Keller, Thomas Rienzo, Matthew Wallace, and Michael Worden, New York; Brittany Andrus and Ruchi Sadhir, Oregon; Anne Margolis, Vermont; Yochi Zakai, Washington; Terry Eads and Earl Melton, West Virginia; and Scot Cullen, Wisconsin. I cannot thank them enough for responding quickly and in detail, so that Appendix A could be completed. Others who contributed background information and ideas include: Scott Baker, PJM Interconnection; Georgianne Huff, Sandia National Laboratories, Douglas Jester, 5Lakes Energy; and Lise B. Trudeau, Minnesota Department of Commerce. Peer reviewers whose comments helped in many ways to clarify the ideas presented in this paper include Praveen Kathpal, AES Energy Storage, and Elizabeth Stipnieks, Edison Electric Institute. Special thanks are also due to Debbie Luyo, whose editing skills helped shape this final version. Finally, I owe a major thank-you to Benjamin M. Attia, NRRI Student Intern, who is an undergraduate student at the University of Delaware. Amidst all of his academic pursuits, Ben dedicated dozens of hours to the tasks of identifying, retrieving, and summarizing much of the information provided in Appendix A, sharing conversations about the content of this paper, and also providing extensive review and comments on early drafts; his support was instrumental. Any inaccuracies, mistakes, omissions, and oversights in this work are my responsibility. Comments, corrections, and recommendations for future work are always welcome and can be submitted to: Tom Stanton, Principal Researcher National Regulatory Research Institute - iii - Table of Contents Introduction ..............................................................................................................................1 I. Benefits of Energy Storage ......................................................................................................2 A. Itemizing the benefits storage can provide ..........................................................................2 B. Difficulties in assessing energy storage benefits..................................................................4 II. Technical, Economic, and Regulatory Challenges ................................................................6 III. State Regulatory Approaches Enabling Energy Storage .....................................................9 A. Implementing storage as a utility resource ..........................................................................9 B. Implementing storage as a customer-sited resource ...........................................................10 C. FERC actions to include storage in wholesale markets .....................................................11 D. Mandating storage ..............................................................................................................11 E. Storage in the broader context of electricity industry transition ........................................12 IV. Recommendations for future research and conclusion ......................................................14